SubscribeArrow

Was this email forwarded to you? Sign up here. (Today's Smart Brevity count: 1,078 words, 4 minutes.)

Situational awareness:

  • California Gov. Gavin Newsom signed a law permitting college athletes to accept endorsement money, breaking apart one of the core pillars of the NCAA’s business model. (Axios)
  • The unemployment rate in the eurozone fell to its lowest in more than 11 years. The rate has fallen or held stable in every month since August 2014. (Reuters)
  • However, manufacturing activity in the eurozone continued its worrisome decline, with IHS Markit's gauge printing its weakest reading since 2012. (Bloomberg)
  • Venture capitalists and executives from hundreds of private companies will gather in Silicon Valley to discuss whether the financial industry’s IPO system is still working. (Bloomberg)
1 big thing: The global real estate rethink
Expand chart

Reproduced from UBS; Chart: Axios Visuals

Housing and real estate are going through a period of systemic change that could reshape how we think about the sector in years to come.

What's happening: Prices in the largest U.S. cities have stagnated for the first time since 2011, mortgage applications are falling and even ultra low interest rates have not been enough to lure buyers back to the market, data shows.

What it means: "Mortgage interest rates in many cities aren't the major challenge for house buyers anymore," Claudio Saputelli, head of real estate at UBS Global Wealth Management, said in the asset manager's annual Global Real Estate Bubble Index.

  • "Many households simply lack the funds required to meet the banks' financing criteria, which we believe poses one of the biggest risks to property values in urban centers."
  • Buying a 650-square-foot apartment exceeds the budget of people who earn the average annual income in the highly skilled service sector in most world cities, per UBS.

Why it matters: It's the end of the boom, Saputelli and Matthias Holzhey, head of Swiss real estate investments, write. The exponential rise in housing prices combined with a lack of major wage gains for average American workers over the last 3 decades may have finally topped the fast-growing urban housing market.

  • Real prices in all 4 of 2016's top-ranking cities have fallen. On average they are down by 10% from their respective peaks.
  • "Owning residential property in global cities has been a sure road to wealth accumulation. However ... real price appreciation can no longer be taken for granted."

Details: Currently, the analysts see 7 cities at high risk of being in a real estate bubble, but more importantly they see a rethink of housing as an asset taking place across the world's developed economies.

  • While the U.S. housing bubble risk has receded as prices have stagnated, the eurozone is now at the greatest risk of a housing bubble, as ultra-low interest rates have helped push many of Europe's cities to price levels reminiscent of bubbles past, UBS analysts said in the paper.
2. Almost half of holiday toy purchases will be made online
Expand chart

Adapted from CivicScience; Chart: Axios Visuals

A recent study of more than 1,200 adults who plan to buy toys this holiday found that almost half of those purchases will be made at online-only retailers like Amazon.

  • A little more than 40% of respondents said their shopping will be done inside stores, either at a big box retailer like Target and Walmart or at a specialty toy store.

Watch this space: "American toy shoppers who have a Prime membership are over 200% more likely to make the bulk of their toy purchases online compared to Amazon subscribers who don’t have a Prime membership. They are also 125% more likely to buy mostly online compared to people who don’t have an Amazon account at all," data firm CivicScience found.

  • "On the flip side, Amazon.com account holders who don’t have a Prime membership are 150% more likely to use Target.com or Walmart.com for the bulk of their toy purchases."
3. Who's really losing the trade war?
Expand chart

Data: Caixin, Institute of Supply Management; Chart: Axios Visuals

The manufacturing sectors of the U.S. and China are moving in opposite directions, and data released Monday shows the gap is widening.

On one side: China's Caixin purchasing managers' index, a private survey of the country’s manufacturing activity, had its strongest reading since February 2018. The improvement was driven largely by increased domestic demand, which has picked up as foreign sales continue to sink because of the trade war.

  • "The Chinese government’s stimulus measures, although relatively modest so far, are helping to buffer China’s industrial sector," Eswar Prasad, a senior fellow at the Brookings Institution and former head of the IMF’s China Division, tells Axios in an email.
  • "The notion that China’s economy faced a drastic slowdown was a bit overblown. They have been facing a steady gradual slowdown that they are not uncomfortable with as growth around 6 percent is a more sustainable rate, now that they are a $13 trillion economy."

On the other side: The Chicago Business Barometer, which tracks Midwestern business activity steered mainly by trade and manufacturing, fell back into contraction in September. A measure of business confidence within the index dropped to its lowest level since 2009.

  • The unexpected weakness "indicates strain in 'real economy' sectors like manufacturing that drive nationwide consumer spending," the Wall Street Journal notes.
  • "The combined gross domestic product for states in the Great Lakes and Plains regions, as defined by the U.S. Bureau of Economic Analysis, account for almost one-fifth of U.S. GDP. Pain in the Midwest will quickly ripple outward."

Of note: Looking at the chart, 50 is the level separating expansion from contraction.

What's next: Today, the Institute for Supply Management will publish its monthly U.S. manufacturing survey, which declined in August for the first time in 3 years.

4. High times may have passed for pot stocks

Marijuana stocks have fallen hard in 2019 and short sellers have been increasing their positions, betting the sector is overvalued and primed for further losses.

  • Despite the passage of the SAFE Act through the House last week, Wall Street remains bearish on companies dealing in the sticky icky icky.

The latest: Bank of America Merrill Lynch analysts Christopher Carey and Lisa Lewandowski downgraded Canada's Canopy Growth, the world's largest marijuana company, to neutral from buy, saying Wall Street expectations are "far too high."

What they're saying: While Carey and Lewandowski said they still see future growth ahead for both the company and the Canadian cannabis market, it's not enough to justify significant further price gains, they wrote in a note to clients.

  • "Canada industry growth is set to pause in the second half, potentially flattening, a trend we think could also be the case with Canopy; and yet the Street is modeling strong double-digit sales growth quarter-on-quarter."
  • They expect the slowdown in near-term industry growth in part because of the negative impact of vaping legislation.

Why it matters to the market: The tide looks to have turned on pot stocks this year, with 2 major ETFs that track the marijuana industry — the Horizons Marijuana Life Sciences ETF and ETFMG Alternative Harvest — losing about half their value since October 2018.

  • Cannabis short sellers, who had gotten smoked betting against the industry in 2018, are seeing their luck change, with the top 20 shorts in the sector up $336 million in the second quarter and $1.76 billion in Q3, data from S3 Partners shows.
  • Since the BAML note was published on Friday, short sellers have seen more than $200 million in mark-to-market profits, according to S3's data.